China’s car market slows down

Many OEMs have pinned their hopes for growth on the booming Chinese car market. But that growth is showing signs of slowing down – and manufacturers may have to resort to price cuts to defend their share of a shrinking market.

Focusing on Geely, China’s biggest domestic OEM, Bloomberg analyses the current state of China’s car market.

Sales slowdown On the face of it, Geely is doing great: the company this week reported a 50% increase in its half-year earnings. Sales growth slowed in comparison to H1 2017 but remained above 40%.

Despite the fact that the sales slowdown could last for the rest of the year, Geely says it is on track to exceed its target for 2018 of 1.58 million units and to hit 2 million by 2020.

Model range Geely’s growth is due to its broad model range, including the popular hybrid and small SUV segments. However, the company’s high-volume strategy also has a downside: inventories grew as well, by almost 30%.

In July alone, overall vehicle inventories in China went up by 5%, while sales fell by about 5% as well.

A further indication of a market heading for a saturation point is the fact that Geely has been selling the Boyue, its popular compact crossover, at a discount of up to 15% since April. Others have had to resort to the same strategy. BMW, for example, has been offering discounts in China, dragging down prices in the luxury vehicle segment.

Bigger discounts Unfortunately, Beijing’s relaxation of restrictions on foreign investment in the car industry may lead to even more capacity, further increasing the oversupply of vehicles on the Chinese market.

While consumers may relish the prospect of more and bigger discounts on new vehicles, the manufacturers themselves may have to take on board rapidly shrinking margins in a market they thought would just keep growing.